Conglomerate General Electric Company (GE) will be reporting its fourth quarter results before the market opens on Friday, with analysts expecting to see the company report $0.32 per share.

During the same period last year, GE had earnings of $0.28 per share.

"Loews Corp. (L) is a holding company run by the New York Tisch family; the stock is selling at less than nine times earnings, and an almost 30% discount to its NAV, based on a sum of the parts," says Adrian Day.

The money manager and editor of The Global Analyst explains, "The company's businesses are mostly doing well; the balance sheet is rock solid; and the shares are undervalued.

"Loews (NYSE: L), the holding company of the New York-based Tisch family, is a way of buying a collection of good stocks at a discount, with much else thrown in free," says Adrian Day.

The editor of the top-notch The Global Analyst explains, "These value investors have a long record of buying quality assets cheaply when they are out of favor, nurturing them, and eventually monetizing them."

"Everyone loves a sale, right? Typically, the Tisch family buys major chunks of out-of-favor businesses, often publicly traded, and holds them for many years. They exemplify the important traits of successful value investors: discipline and patience.

"I calculate a New Asset Value for Loews-taking current (depressed) stock prices for its publicly traded holdings, the cash, and conservative valuations for the private assets-of almost $39 per share.

General Electric Company (NYSE: GE) missed by a penny. But a look behind its corporate veil reveals a company that is not getting the so-called benefits of diversification. Instead, the great performance of one of its businesses is being overwhelmed by all the other businesses which are shrinking. My concern is what happens if that one business also takes a dive.

GE net income fell 44% to $3.65 billion and its earnings per share (EPS) from continuing operations was 36 cents -- analysts had expected 37. Here's the bad news:

• GE's financial-services business, GE Capital, made a profit of $383 million -- an 88% drop while its revenues fell 18%. Its CNBC cable channel reported that it would cut 7,000 jobs and save $2 billion.
  
• GE's consumer and industrial business suffered an 86% earnings decline as revenue fell 17%
• GE's television and movie network. NBC Universal suffered a 6.3% earnings decline while revenue slid 2.7% as declines at local stations -- presumably suffering from weak advertising demand -- were partially offset by strong cable earnings

CNNMoney reports that General Electric Company (NYSE: GE) missed earnings expectations by a mile. Its net income fell 12% to $4.4 billion, or 44 cents per share, seven cents less than what Thomson Financial's polling of analysts had estimated.

In February I analyzed GE's breakup value and concluded that the stock was probably a bit overvalued. The big problem with today's earnings announcement was GE's financial services unit. Like Wall Street banks, GE suffered from "extraordinary disruption in the capital markets in March [which] affected our ability to complete asset sales and resulted in higher mark-to-market losses and impairments."

But that's not all. GE missed on revenues and lowered its guidance. Sales rose 8% to $42.2 billion, $1.5 billion below analysts' forecast of $43.7 billion. GE lowered its full year guidance to between $2.20 and $2.30 per share, reflecting flat to 5% growth. GE is down 11% in pre-market.

Since its current CEO, Jeff Immelt took over in September 2001, GE stock has fallen 20% from $41 to $33. Remind me again of why the "great" Jack Welch chose Immelt to succeed him.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns GE shares.

Marketwatch's John Dvorak has an interesting theory about Microsoft Corp. (NASDAQ: MSFT): It's turning into a holding company similar to the famous one controlled by Bill Gates' friend and bridge partner, Warren Buffett. He outlines this theory in two columns, which you can read here and here. Here's an excerpt outlining the central thesis:

Imagine Microsoft not as a big software company but as KKR or any of the private equity holding companies. Or Berkshire Hathaway.

If seen as such, I can think of numerous stand alone companies within the company already: an office productivity software company, a server software company, an operating systems software company, an email specialty company, an online service (MSN) company, a book publishing company, a mouse and keyboard manufacturing company, a game console company, a game software company, an online gaming company. You get the idea.

Dvorak may very well be right, but this isn't a change I think investors want to celebrate. While Berkshire Hathaway (NYSE: BRK.A) has had tremendous success, the reality is that the vast majority of conglomerates don't perform well. Acquisitions tend not to create long-term value, and if that's the way Microsoft is going to have to fuel growth ... investors should move along.

Cheering for Microsoft's rebirth as a holding company is like celebrating the fact that your 9-year old skips school to play basketball. Maybe he's the next Lebron James, but it's not likely.

Microsoft has a steep hill to climb back to relevance, and trying to go the conglomerate-route will probably only make it steeper.

3M Co. (NYSE: MMM) and Honeywell International Inc. (NYSE: HON) today reported better-than-expected third quarter results and raised their earnings guidance. But Caterpillar Inc. (NYSE: CAT) disappointed Wall Street and offered a gloomy outlook for the U.S. economy. That bad news pulled down 3M and Honeywell's shares, as well as pulling down the Dow Jones Industrial Average by triple digits.

"The third-quarter earnings that are coming out are the worst but we don't see a sharp bounce-back,'' Christina Bank & Trust's Scott Arminger told Bloomberg News. "Financial earnings will be pretty mediocre for a couple of quarters going forward.''

The maker of Post-It notes and countless other products reported net income of $960 million, or $1.32 per share, compared with $894 million, or $1.18 per share, a year earlier. Revenue rose 5.5% to $6.2 billion. Excluding one-time earnings, profit was $1.29 compared with $1.17 a year earlier. Analysts expected profit of $1.28 and revenue of $6.29 billion, according to Thomson Financial. 3M raised its earnings forecast to $5.54 to $5.62 for this year, compared with previous guidance of $5.40 to $5.60. It expects full year sales growth excluding the divestiture of the branded pharmaceutical business of 7% to 8%.

Honeywell's profit rose 14% to $618 million, or 81 cents per share and revenue rose 10 percent to $8.74 billion, helped by strength in its commercial aviation, defense and space markets. The results beat Wall Street consensus expectations of 82 cents on revenue of $8.59 billion.

According to the Sunday New York Times, conglomerates are back. Companies like ITT Corp. (NYSE: ITT) and Textron Inc. (NYSE: TXT) are trading near multi-year highs. William Holstein writes:

To some extent, the new conglomerates have simply become lucky. They are riding a global infrastructure spending boom for airports and airlines, power systems, waste water and environmental projects, and hospitals and health care systems, not to mention record government spending on military projects and security surveillance. Their ability to assemble product offerings from different industries is a source of strength, they say.

While I'd be extremely skeptical if someone referred to the recent strength of conglomerates as some sort of new paradigm, it really may be different this time. The conglomerate boom of the 1960s and 1970s ended in disaster for many of the high-fliers, but changes have been made. Private equity firms have employed a conglomerate-like model to generate huge returns for their investors, and smarter management and more competent deal-making is leading to better-crafted hodgepodges of divergent businesses.

Honeywell International (NYSE: HON) CEO David Cote is also quoted in the Times piece: "When you look back at the history, the companies were put together without any real integration. They were really just holding companies. They didn't try to do anything to make the businesses better."

The old-time model of hyping the stock of a conglomerate and using it to acquire companies at a lower price/earnings multiple is no longer in vogue, mercifully.

For an interesting, although not entirely enjoyable, look at the history of the conglomerate business model, pick up a copy of The Rise and Fall of the Conglomerate Kings by Robert Sobel.

General Electric Co. (NYSE: GE) trades at a 4% conglomerate discount. A conglomerate owns many different businesses -- which do not share resources. The rationale for conglomerates was that they allow investors to buy a diversified earnings stream -- when one business is up the other is down and vice versa. In theory this makes earnings smoother.

Finance theory suggests that conglomerates should trade at a discount to the stand alone value of those businesses. The reason for the conglomerate discount is that investors are able to construct a portfolio of stocks that will achieve the diversification themselves. Thus all the overhead needed to manage these diverse businesses under one umbrella adds cost without creating offsetting investment value.

One way to test this theory is to compare the weighted average price/earnings (P/E) ratios of the industries in which GE competes with GE's overall P/E. When I did this, I found that if each of GE's business units was a stand alone public company, its industry P/E weighted by its proportion of operating earnings to the total, averaged out to 19.9. This is substantially above GE's P/E of 19.1, suggesting that GE trades at a 4% conglomerate discount.

Next Tuesday I am scheduled to meet with General Electric Co. (NYSE: GE) Chief Financial Officer Keith Sherin to discuss GE's performance and prospects. This meeting came at the company's initiation.

As a GE shareholder I have not been thrilled with the performance of the stock. Since September 7, 2001 when current CEO Jeff Immelt took over, the stock has risen 3% from $39.60, compared to a 40% increase in the S&P 500. Moreover, on the basis of its Price/Earnings to Growth (PEG) ratio of 1.5 -- based on a P/E of 19.5 and earnings forecast to grow 13% to $2.50 in 2008 -- GE looks somewhat overvalued to me.

So here are some questions I plan to ask:

• Since the current GE CEO took over, GE stock is up 3%, compared to a 40% increase in the S&P 500. Why has GE stock underperformed this average?
• GE stock has risen 23% in the last year, however, it trades at a PEG of 1.5 which makes it a bit expensive. Why should investors buy GE stock now?
• Since the Healthcare, Industrial and NBC Universal segments all saw revenues fall in the first half with relatively weak profit performance, why doesn't GE sell these businesses and invest the proceeds to increase its market share in the more financially successful Infrastructure and Commercial Finance units?
• If GE chooses to stay in Healthcare how will it offset the negative impact of the federal government's decision to cut reimbursements to nonhospital imaging centers?
• Under Jack Welch, GE's philosophy was to only be in businesses in which it could be #1 or #2. Recently NBC was ranked the 4th most watched network. Will GE sell NBC? If not, why is GE keeping NBC? How does NBC's coordination with other GE divisions increase GE's overall revenues or lower its costs?
• How vulnerable is the GE Money unit to an increase in consumer loan defaults? Is GE Money likely to experience accelerated revenue and profit growth in 2008 or slower growth? Why?
• What impact would a 10% decline in the dollar have on GE's Earnings Per Share (EPS)?
• What other external factors -- such as an increase in interest rates or a rise in energy prices -- represent the biggest risks to GE's EPS? How do you quantify those risks?

Please let me know which ones you'd like to add to the list.

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He owns General Electric stock.